The general Notion is that Bitcoins Are ‘mined’… interesting expression here… by solving an increasingly difficult mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again interesting- to a computer. Once established, the new Bitcoin is put into an electronic ‘wallet’. It’s then possible to trade real goods or Fiat money for Bitcoins… and vice versa. Furthermore, since there is not any central issuer of Bitcoins, it is all highly dispersed, thus resistant to being ‘handled’ by jurisdiction.
Naturally proponents of Bitcoin, Those who benefit from the growth of Bitcoin, insist fairly loud that ‘for certain, Bitcoin is money’… and not only that, but ‘it is the best money ever, the money of the future’, etc.. . The proponents of all Fiat shout as loudly that paper money is money… and most of us know that Fiat newspaper is not money by any means, as it lacks the main attributes of genuine cash. The question then is does Bitcoin even qualify as cash… not mind it being the cash of the near future, or the very best money ever.
Compared to Fiat, Bitcoin does not Do too badly as a medium of trade. Fiat is only accepted in the geographical domain of its own issuer. Dollars aren’t any good in Europe etc.. Bitcoin is approved internationally. On the other hand, not many retailers now accept payment in Bitcoin. Unless the acceptance grows geometrically, Fiat wins… although at the cost of exchange between nations.
The primary condition is that a great deal Tougher; money must be a stable store of value… today Bitcoins have gone out of a ‘value’ of $3.00 to about $1,000, in just a couple years. That is about as far away from being a ‘stable store of value’; as you can buy! Indeed, such profits are an ideal illustration of a speculative boom… such as Dutch tulip bulbs, or junior mining companies, or even Nortel stocks. Hopefully, just as with so many other aspects regarding bitcoin revolution, you will need to pay more consideration to some things than others. What is more important for you may be less so for others, so you have to consider your unique circumstances. Of course there is quite a lot more to be learned. We are keeping the best for last, and you will be pleased at what you will find out. We think you will find them highly relevant to your overall goals, plus there is even more.
Naturally, Fiat fails here as well; As an example, the US Dollar, the ‘main’ Fiat, has lost over 95 percent of its worth in a few decades… neither fiat nor Bitcoin qualify in the most important measure of money; the capacity to store value and conserve value through time. Real money, which is Gold, has shown the capacity to hold value not just for centuries, except for eons. Neither Fiat nor Bitcoin has this critical capacity… both neglect as cash.
Ultimately, we come to the next Attribute; this of being the numeraire. This is really intriguing, and we can see why the two Bitcoin and Fiat fail as money, by looking closely at the question of the ‘numeraire’. Numeraire refers to the usage of cash to not only store worth, but to at a sense measure, or compare value. In Austrian economics, it is deemed impossible to actually quantify value; after all, significance resides just in human consciousness… and how can anything in understanding really be quantified? But through the principle of Mengerian market action, that is interaction between bid and offer, market prices can be established… if only briefly… and this market price is expressed concerning the numeraire, the most marketable good, that’s money.
So how do we establish the value of Fiat… ? Through the concept of ‘buying power’… which is, the value of Fiat depends upon what it can be exchanged for… a so called ‘basket of goods’. But his clearly implies that Fiat has no significance of its own, rather value flows from the value of the goods and services it may be traded for. Causality flows from the goods ‘purchased’ to the Fiat number. After all, what difference is there between a one Dollar bill and a trillion Dollar invoice, except that the amount printed on it… and the purchasing power of this number?
Gold, on the other hand, isn’t Measured by what it deals for; rather, uniquely, it is quantified by another physical standard; by its own weight, or mass. A g of Gold is a gram of gold, and an ounce of Gold is an ounce of Gold… no matter what number is engraved on its surface, ‘face value’ or differently. Causality is the opposite to that of Fiat; Gold is measured by weight, an intrinsic quality… not by buying power. Now, have you really any notion of the worth of an ounce of Dollars? No anything. Fiat is just ‘measured’ by an ephemeral quantity… the amount printed on it, the ‘face value’.
Bitcoin is further away from being The numeraire; not only is it simply a few, much as Fiat… but its worth is measured in Fiat! Even if Bitcoin becomes internationally recognized as a medium of exchange, and even though it manages to replace the Dollar as the approved ‘numeraire’, it can not possess an intrinsic measure like Gold has. Gold is unique in being measured by a true, unchanging physical quantity. Gold is exceptional in preserving value for thousands of years. Nothing else in touch of humankind has this exceptional combination of attributes.